Shares of Public Storage PSA have outperformed the industry it belongs to so far in the quarter. The company’s shares have rallied 6.3%, while the industry has gained 4.4% over this period.
Moreover, the trend in estimate revisions for 2022 funds from operations (FFO) per share indicates a favorable outlook for the company, with estimates moving marginally north over the past month.
Image Source: Zacks Investment Research
Markedly, this self-storage REIT is one of the largest owners and operators of storage facilities in the United States. The ‘Public Storage’ brand is the most recognized and established name in the self-storage industry, with its presence across all the major metropolitan markets of the United States.
Thus, PSA is likely to gain from the economies of scale apart from benefiting from brand recognition. It is also leveraging technology for revenue optimization and cost efficiencies and has invested in technologies in the past few years.
In addition, Public Storage has been capitalizing on growth opportunities. In the June-end quarter, the company acquired 10 self-storage facilities comprising 0.7 million net rentable square feet of area for $123.6 million. Following Jun 30, 2022, the company acquired or was under contract to acquire 24 self-storage facilities spanning 1.7 million net rentable square feet of space across 10 states for $257.4 million. In the second quarter, this REIT completed several expansion projects with 0.3 million net rentable square feet and costing $36.9 million.
Since the beginning of 2020, the company acquired a total of 314 facilities, with 28.4 million net rentable square feet, for $6.2 billion. Further, for 2022, the company expects $1 billion of acquisitions and $250 million of development openings. With one of the strongest balance sheets in the sector and adequate liquidity to withstand any challenges, Public Storage is well-poised to bank on expansion opportunities through acquisitions and developments.
However, Public Storage operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. In addition, in recent years, supply has been increasing in many markets. This is likely to fuel competition for the company, affecting occupancies and curbing its power to raise rents and turn on more discounting.
For Public Storage, vacates are still down and are helping the occupancy level to remain high. However, such factors are likely to moderate as tenants revert to more normal move-out behavior as the impact of the pandemic abates, leading to upward pressure on vacate trends and resulting in adverse pressure on rate growth in many markets.
Public Storage currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
Some key picks from the REIT sector include Prologis Inc. PLD and Host Hotels & Resorts HST.
Prologis carries a Zacks Rank of 2 (Buy) at present. Prologis’ long-term growth rate is projected at 9.8%. The Zacks Consensus Estimate for PLD’s 2022 FFO per share has been revised marginally upward in the past two months.
The Zacks Consensus Estimate for Host Hotels & Resorts’ 2022 FFO per share has moved nearly 1.2% upward in the past week to $1.75. HST presently carries a Zacks Rank of 2.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Host Hotels & Resorts, Inc. (HST) : Free Stock Analysis Report
Public Storage (PSA) : Free Stock Analysis Report
Prologis, Inc. (PLD) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research